No results found

Winter is Coming

Winter is Coming

Over the past several weeks, we've watched as two media giants have squared off in private and public arenas, fighting for the future of their legacies, embracing the hearts of their supporters and attacking the minds of their critics.

No, we're not talking about another PED scandal rocking the MLB, suspending three All-Stars and nine others.

We're talking about the showdown between CBS and Time Warner Cable (TWC) resulting in millions of subscribers going dark. Not only did the blackout include the CBS broadcast but also Showtime, TMC, FLIX, Smithsonian and restricted access to for TWC broadband-only customers.

As part of the Cable Television Consumer Protection and Competition Act of 1992, the door was opened for broadcasters to charge operators with a per-subscriber fee to offset increasing programming costs. Disputes over retransmission fees are not new. Over the years, these have resulted in similar spats in the public arena with similar blackouts. At the heart of the negotiation is - of course - dollars. Billions of dollars. SNL Kagan projects the multi-billion dollar retransmission fees to grow to $5.5 billion by 2017.

For station groups, retransmission represents a double-digit percentage of revenue. Content, which Netflix used to gain critical acclaim and rejuvenate their stock price, is king. And content - good, exclusive content - doesn’t come cheap. Last year, CBS chairman and CEO Les Moonves stated, "If you are really paying for eyeballs and ESPN is getting $5 and we are watched by four times as many people..., what do you think? $20 a sub? I know that is an absurd number, but as the marketplace gets down to paying for eyeballs, we are entitled to ask for more and we are starting to get more. When people talk of smaller packages, they have to have us. We are the No. 1 network, we have the NFL, we have the [NCAA] basketball tournament, we have Big Bang Theory, we have 60 Minutes... You have to have us in any package."

For pay TV operators, retransmission fees are likely to be passed down to their subscribers who already are forced to accept channel bundling. While these are not their decisions, pay TV operators bear the brunt of public dissatisfaction and criticism.

Earlier Monday, TWC proposed to "resume carriage by allowing CBS to make its stations available on an a la carte basis at a price and on terms of its choosing, with 100% of that price remitted to CBS. This way, rather than our debating the point, we would allow customers to decide for themselves how much value they ascribe to CBS programming."

At the very least, TWC submitted an intriguing proposition as a wedge to break the long-standing notion of channel bundling. But it was no surprise that CBS later responded with a curt statement that "today's so-called proposal is a sham." 

CBS and TWC will come to an agreement. CBS will likely pinch additional pennies (likely 50-75) per subscriber, and TWC will likely pass on that cost to their subscribers with an increase in their cable bill.

Caught between these feuding giants are the millions of subscribers, collateral damage in a game of digital thrones. As the industry focuses on a business model of the past, the digital landscape continues to evolve and draw subscribers to alternate mechanisms for consuming content. With the recent introduction of Chromecast, expansion of Aereo, upcoming offerings from Intel and Microsoft and the billion dollar NFL content deal with Verizon that circumvents the established TV Everywhere model, consumers will seek alternatives to the status quo of pay TV.

Instead of feuding, broadcasters should be focusing their efforts on making TV Everywhere successful, creating new models of monetization to increase engagement and CPM lift and improving measurement across all devices and platforms. Pay TV providers should be focusing on delivering greater value to their subscribers, optimizing video consumption for a mobile, social and anytime/anywhere lifestyle to stem the trend of subscriber losses.

While many believe that the television industry has sidestepped its Napster moment, the digital winter is coming.

Actually ... it's already here.